Small business firings outpace hirings for first time this year, holding back economic recovery


Small businesses lost more jobs than they added in May, according to the NFIB. It’s the first time that has happened all year. (LUCY NICHOLSON/REUTERS)

Small business lending and optimism are on the rise, according to several recent reports.

Small business hiring — not so much.

Employment at small firms declined an average of 0.04 workers per company in May, according to a new report by the National Federation of Independent Business. It marks the first decline of the year, following five straight months of growth that had many hoping small businesses were finally finding their footing.

Without much help from small firms, the economy still managed to add a better-than-expected 175,000 jobs in May, but not enough to keep the unemployment rate from nudging up from 7.5 percent to 7.6 percent.

Bill Dunkelberg, NFIB’s chief economist, noted that small business owners’ future hiring plans dipped last month, too — “not a sunny outlook for the summer months,” he said.

“Owners are still quite pessimistic about economic recovery, though far less so than six months ago,” Dunkelberg said in a statement. “It will take a marked improvement in sales to convince them to hire more workers, and prospects for that are not good.”

Related: Do small businesses actually create jobs?

The report shows that, for every three small business owners who added jobs last month, another four cut their payrolls. Compared to April, the number of employers that brought on new workers fell 4 points to 9 percent.

Making matters more difficult, most of those who tried to hire workers said they had trouble finding qualified candidates.

“The steady, but painfully slow journey toward positive job creation can’t seem to maintain any steam,” Dunkelberg said.

Hours before NFIB published its index, ADP, a payroll processing company, reported that private companies added only 138,000 workers in May, far short of the 165,000 projected by analysts in the days leading up the report. The numbers were driven down by manufacturers, which have shed 6,000 jobs since April.

ADP also revised its hiring estimate for the previous month down to 113,000.

The group blamed the consistently low readings on “increased taxes and the budget cuts.”

Small business employment has exceeded that of large companies since about 2006, according to ADP. However, since hiring started rebounding in 2010, large firms have recovered about 2 million jobs they lost during the recession, while small firms have added less than 1 million over the same period.

“The job market continues to expand, but growth has slowed since the beginning of the year,” Mark Zandi, chief economist at Moody’s Analytics, said in a statement. “The slowdown is evident across all industries and all but the largest companies.”

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.

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